Israeli plan for east Jerusalem clouds peace talks

/ AP

A protestor holds a Palestinian flag during a demonstration against the blockade on Gaza near Khan Younis in the southern Gaza Strip, Monday, May 10, 2010. An Israeli-Egyptian blockade was imposed on Gaza after the Islamic militant group Hamas seized the territory from forces loyal to Palestinians President Mahmoud Abbas in 2007.(AP Photo/Hatem Moussa)

A protestor holds a Palestinian flag during a demonstration against the blockade on Gaza near Khan Younis in the southern Gaza Strip, Monday, May 10, 2010. An Israeli-Egyptian blockade was imposed on Gaza after the Islamic militant group Hamas seized the territory from forces loyal to Palestinians President Mahmoud Abbas in 2007.(AP Photo/Hatem Moussa) (/ AP)

AMY TEIBEL, Associated Press Writer

/ AP

A Palestinian vendor reads a newspaper at his shop in Jerusalem's Old City, Monday, May 10, 2010. (AP Photo/Bernat Armangue)

A Palestinian vendor reads a newspaper at his shop in Jerusalem's Old City, Monday, May 10, 2010. (AP Photo/Bernat Armangue) (/ AP)

/ AP

Veiled Palestinian women sit on motorcycles during a demonstration against the blockade on Gaza , near Khan Younis in the southern Gaza Strip, Monday, May 10, 2010. An Israeli-Egyptian blockade was imposed on Gaza after the Islamic militant group Hamas took control of the territory from forces loyal to Palestinian President Mahmoud Abbas in 2007.(AP Photo/Hatem Moussa)

Veiled Palestinian women sit on motorcycles during a demonstration against the blockade on Gaza , near Khan Younis in the southern Gaza Strip, Monday, May 10, 2010. An Israeli-Egyptian blockade was imposed on Gaza after the Islamic militant group Hamas took control of the territory from forces loyal to Palestinian President Mahmoud Abbas in 2007.(AP Photo/Hatem Moussa) (/ AP)

/ AP

Protestor hold Palestinian flags during a demonstration against the blockade on Gaza near Khan Younis in the southern Gaza Strip, Monday, May 10, 2010 near an Israeli army watch tower in the background. An Israeli-Egyptian blockade was imposed on Gaza after the Islamic militant group Hamas seized the territory from forces loyal to Palestinians President Mahmoud Abbas in 2007.(AP Photo/Hatem Moussa)

Protestor hold Palestinian flags during a demonstration against the blockade on Gaza near Khan Younis in the southern Gaza Strip, Monday, May 10, 2010 near an Israeli army watch tower in the background. An Israeli-Egyptian blockade was imposed on Gaza after the Islamic militant group Hamas seized the territory from forces loyal to Palestinians President Mahmoud Abbas in 2007.(AP Photo/Hatem Moussa) (/ AP)

/ AP

A Palestinian woman holds a picture of a prisoner jailed in Israel, during a demonstration calling for the release of prisoners near Erez crossing, northern Gaza Strip, Monday, May 10, 2010.(AP Photo/Hatem Moussa)

A Palestinian woman holds a picture of a prisoner jailed in Israel, during a demonstration calling for the release of prisoners near Erez crossing, northern Gaza Strip, Monday, May 10, 2010.(AP Photo/Hatem Moussa) (/ AP)

Israel said Monday it will press forward with construction of new housing for Jews in east Jerusalem, drawing Palestinian accusations that the plans could undermine newly relaunched peace talks.

His hawkish government wants construction in east Jerusalem, the section of the holy city claimed by the Palestinians, to continue. But American mediators and the Palestinians want the building halted.

"Building is expected to begin soon in Har Homa ... and Neve Yaakov, where (construction) bids have been issued," Hauser told Army Radio, referring to two east Jerusalem neighborhoods. "Building in Jerusalem is continuing according to its regular pace."

U.S. Mideast envoy George Mitchell left the region Sunday after completing the first round of indirect peace talks between Israelis and Palestinians - who resumed negotiations last week after at 17-month hiatus.

The U.S. praised both sides on Sunday for taking small steps to create a positive atmosphere, including an Israeli pledge not to build a major housing project for two years. The planned construction of 1,600 new apartments in the Ramat Shlomo neighborhood had caused a serious rift with Washington.

Hauser said it would have taken a couple of years anyway before the Ramat Shlomo project would begin, and in the meantime, construction in other east Jerusalem neighborhoods would proceed. He gave no timetable for the building in Har Homa and Neve Yaakov and did not say how many new apartments are planned there.

Despite Hauser's claim, Israeli construction in east Jerusalem has been held back, though not halted, since the dispute over Ramat Shlomo erupted in March. Israel has not approved any new housing plans, but construction on hundreds of apartments that were previously approved has proceeded.

On Sunday, the anti-settlement watchdog group Peace Now said Jewish settlers had begun work on a 14-unit apartment building in an abandoned police station in Ras al-Amud, an Arab neighborhood in east Jerusalem. The building is owned by a Jewish group, and the project does not require any government approval unless the residents want to expand the building, Peace Now said.

Nonetheless, Palestinians said the project violated the terms of the new peace talks, in which Israel has promised not to take any provocative actions. Palestinian President Mahmoud Abbas said he would address his concerns with the Americans.

"The Americans said some words to us, and they said some words to the Israelis, and now it's up to the U.S. administration to answer such things," Abbas told reporters.

Chief Palestinian negotiator Saeb Erekat said the Israeli position undermined trust-building as the U.S. tries to get the indirect negotiations, or proximity talks, moving.

"The whole concept of proximity talks is to give Senator George Mitchell and U.S. President Barack Obama the chance they deserve," Erekat said. "If they begin doing this (building), I think they will take down the proximity talks."

Israeli Cabinet Minister Dan Meridor said Israel could not accept a "discriminatory" policy that barred Jews from living in certain parts of the city. But he said "the policy of the government will try to be wise."

Sovereignty over Jerusalem is the most emotionally charged issue dividing Israel and the Palestinians. The eastern sector is home to a disputed hilltop compound in Jerusalem's Old City, known as Temple Mount to Jews and Noble Sanctuary to Muslims. It is Judaism's holiest site and Islam's third-most sacred shrine.

Meridor said any future arrangement in Jerusalem would guarantee free access for all religions to worship. But he added: "To take the Old City and cut it to pieces I think is not only not right but not realistic."

Israel annexed east Jerusalem immediately after capturing it from Jordan in the 1967 Middle East war, and Netanyahu, hardening the positions of his immediate predecessors, says he won't share it with the Palestinians.

The Palestinians want east Jerusalem as capital of a future state and see continued Israeli construction there as undermining their claim. The international community does not recognize the annexation.

The Obama administration's vocal opposition to Jewish construction in east Jerusalem - unprecedented in U.S. politics - has forced Israel to recognize that the world equates Jewish building there with settlement construction in the West Bank.

Israel's refusal to bow to Palestinian calls for a total settlement freeze has forced the two sides into an awkward arrangement of negotiating through Mitchell - a step backward after 16 years of face-to-face negotiations.